What is foreign investment? How much did Ford Motors invest in India? In what ways will the production of cars by Ford Motors in India lead to interlinking of production?

Q.:- Read the passage and answer the questions.

Ford Motors, an American company, is one of the world’s largest automobile manufacturers with production spread over 26 countries of the world. Ford Motors came to India in 1995 and spent ` 1,700 crore to set up a large plant near Chennai. This was done in collaboration with Mahindra and Mahindra, a major Indian manufacturer of jeeps and trucks. By the year 2004, Ford Motors was selling ` 27,000 cars in the Indian markets, while, 24,000 cars were exported from India to South Africa, Mexico and Brazil. The company wants to develop Ford India as a component supplying base for its other plants across the globe.

1. Would you say Ford Motors is a MNC? Why?
2. What is foreign investment? How much did Ford Motors invest in India?
3. By setting up their production plants in India, MNCs such as Ford Motors tap the advantage not only of the large markets that countries such as India provide, but also the lower costs of production. Explain the statement.
4. Why do you think the company wants to develop India as a base for manufacturing car components for its global operations? Discuss the following factors
(a) Cost of labour and other resources in India.
(b) The presence of several local manufacturers who supply auto-parts to Ford Motors.
(c) Closeness to a large number of buyers in India and China.
5. In what ways will the production of cars by Ford Motors in India lead to interlinking of production?
6. In what ways is a MNC different from other companies?
7. Nearly all major multinationals are American, Japanese or European, such as Nike, Coca-Cola, Pepsi, Honda, Nokia. Can you guess why?

 

Answer:-

1. Yes, because it owns or controls its production units in many countries, with its head office in USA.

2. Investment made by an MNC to buy assets like land, building and machinery equipment in a country other than the country of their origin is termed as foreign investment. Ford Motors invested Rs. 1,700 crore In India.
3. To reduce their costs and maximize their profits, MNCs generally set up production plants where
(a) They are close to their markets.
(b) Skilled / unskilled labour is available at a low cost.
(c) Availability of other factors of production is there.
(d) Government policies are favourable.
Ford Motors has done the same by setting up a large plant near Chennai, as all the above conditions were met.
4.The company wants to develop India as a base for manufacturing car components for the following reasons
(a) A number of local manufacturers are supplying car components to their Chennai plant and the MNC feels that they can supply to their other plants across the world.
(b) Cost of labour and materials is very low in India/which will result in more profits for the MNC.
(c) The components can be supplied cheaply to other MNC car manufacturers in India and China.
5. Ford Motors has taken the following steps which will lead to interlinking of production
(a) They have set up a production plant for cars in Chennai in partnership with a local company, Mahindra and Mahindra.
(b) They are asking the local companies of car parts for supplying parts for their cars manufactured in their production unit and are also planning for supplying these parts to their other car production units around the globe.
(c) They are closely competing with local companies in the Indian market in selling their cars.
6. Differences between a MNC and a normal company

MNC

Company

A company that has already made a name in the market for its particular product and is equipped with a huge financial capability to expand to other countries. 

A company that owns or controls production in one or more countries,

 

They invest in other countries besides their home country.

 

 

 

They may not have huge financial resources. 

 

 

 

They own or control production in only one country, their home country.

 

They do not invest in other countries.

7. America, Japan and most countries in Europe are developed countries with immense wealth. Companies in these countries are having a large amount of surplus funds and so they can work as MNCs.